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What has foreign exchange market intervention since the Plaza Agreement accomplished?

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Author Info

  • Michael Bordo
  • Anna Schwartz

Abstract

We review the conduct and scale of official intervention by monetary authorities in the U.S.A., Japan, and West Germany since the Plaza Agreement. Relative to trading volume and the stock of internatonally traded assets denominated in foreign currencies, intervention is small-scale and sporadic, hence at best limited to transitory effects. It does not appear to reduce volatility of daily exchange rates. Monetary authorities gamble that they will not suffer losses on their foreign currency holdings. Evidence in favor of sterilized foreign exchange market intervention as a way of conveying information to the private sector is far from convincing. Since changes in relative monetary growth rates are sufficient to alter bilateral exchange rates, monetary authorities can achieve their exchange rate preferences with domestic monetary policy, but at the cost of possible distortionary effects on monetary growth rates, domestic interest rates, and international capital flows. Copyright Kluwer Academic Publishers 1991

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File URL: http://hdl.handle.net/10.1007/BF01886134
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 2 (1991)
Issue (Month): 1 (February)
Pages: 39-64

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Handle: RePEc:kap:openec:v:2:y:1991:i:1:p:39-64

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: monetary authorities; intervention; foreign exchange markets;

References

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  1. Kathryn M. Dominguez and Jeffrey A. Frankel., 1992. "Does Foreign Exchange Intervention Matter? Disentangling the Portfolio and Expectations Effects," Center for International and Development Economics Research (CIDER) Working Papers C92-001, University of California at Berkeley.
  2. Dornbusch, Rudiger & Frankel, Jeffrey, 1988. "The Flexible Exchange Rate System: Experience and Alternatives," Department of Economics, Working Paper Series qt5ct1w459, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Maurice Obstfeld, 1991. "The Effectiveness of Foreign-Exchange Intervention: Recent Experience," NBER Working Papers 2796, National Bureau of Economic Research, Inc.
  4. Martin Feldstein, 1988. "International Economic Cooperation," NBER Books, National Bureau of Economic Research, Inc, number feld88-4, May.
  5. Dominguez, Kathryn Mary, 1990. "Market responses to coordinated central bank intervention," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 121-163, January.
  6. Mussa, Michael, 1979. "Empirical regularities in the behavior of exchange rates and theories of the foreign exchange market," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 11(1), pages 9-57, January.
  7. Rogoff, Kenneth, 1984. "On the effects of sterilized intervention : An analysis of weekly data," Journal of Monetary Economics, Elsevier, vol. 14(2), pages 133-150, September.
  8. Frankel, Jeffrey A., 1982. "In search of the exchange risk premium: A six-currency test assuming mean-variance optimization," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 255-274, January.
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Citations

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Cited by:
  1. Karunaratne, Neil Dias, 1996. "Exchange rate intervention in Australia (December 1983 to May 1993)," Journal of Policy Modeling, Elsevier, vol. 18(4), pages 397-417, August.
  2. St├ęphanie Guichard, 1998. "La politique mon├ętaire et la crise japonaise," Working Papers 1998-06, CEPII research center.
  3. Thomas Willett, 1999. "Developments in the Political Economy of Policy Coordination," Open Economies Review, Springer, vol. 10(2), pages 221-253, May.
  4. Alfred Broaddus & Marvin Goodfriend, 1996. "Foreign exchange operations and the Federal Reserve," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 1-20.

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